Based on feedback from a pension change consultation exercise, an industrial company decided that it would offer members of its final salary scheme the choice between:
- retaining the link between their pension and their future salary increases, but having to pay higher contributions
- continuing to pay contributions at the current level, but having their pensionable salary fixed.
However, members could also choose to leave the final salary scheme, retaining a deferred pension for their past service, and join the company’s defined contribution (DC) arrangement for future service.
Both the company and the trustees recognised that this was not a straightforward decision. As a result, they decided that independent advice was essential if members were to be able to understand and work through all of the factors they would need to take into account. bac‘s brief was to provide generic advice to members which would equip them to make an informed choice
Equipping members to make an informed choice
The challenge when designing the best advice model was the diversity of the final salary scheme’s membership. A multi-strand communication programme was developed, suited to people who learn in various different ways:
- Member guide – for people who like written material and the ability to reflect on the relevant issues in their own time
- Presentations – for those who understand information best through verbal communication and who want to be able to ask questions directly (or hear the answers to other people’s questions)
- Web modeller and website – for those comfortable with technology and who like an interactive approach.
The member guide set out full details of the options and explained all of the key factors that could affect a member’s decision. It also included worked examples for members at different ages and with different periods of past service. This was augmented by presentations, at which one of the bac team explained the contents of the guide and answered any questions posed by members.
A significant part of the support to members was a web-enabled modeller which allowed members to input their own details, as well as different assumptions about the future, and see how their pension would be affected (two of the results pages are shown below). There was also the ability to ask questions via a dedicated email address, with bac providing answers to frequently asked questions on the modeller website.
Approximately 90% of the final salary scheme members used the modeller to investigate their pension under the different options. This was a far higher level of engagement than the company had previously seen. The power of the modeller was that it enabled members, in their own time, to really get to grips with the factors that could affect their pension under the different options. This meant that each member could think through what risks concerned them the most and thereby identify the option that was best for them.